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Daikin soars on retail draught

The second-largest AC player is scaling up distribution, products and its brand to climb to the top.It started with its turnaround in the residential segment

Alokananda Chakraborty  |  New Delhi 

In 2012, Airconditioning India (Daikin), a 100-per-cent subsidiary of Industries, Japan, earned 70 per cent of its India revenue from the and the balance from residential. In 2014, it garners 70 per cent of its revenue from residential and 30 per cent from commercial. In 2009-10, sold 34,000 (ACs); by 2013-14, this figure had grown 12 times to about 400,000 units. In this period, the company has also increased its revenues manifold - from Rs 440 crore in 2009-10 to Rs 2,200 crore in 2013-14. It is now the second-largest maker after in terms of revenue, according to available data.

Daikin has done a complete u-turn in its strategy over the years. It started out with an eye on the commercial segment to becoming a major player in the residential market. From all accounts, the two things have gone hand in hand. "The turnaround in Daikin's fortunes in India is in large measure an outcome of higher localisation," says Kanwal Jeet Jawa, managing director, and the mastermind of the company's turnaround plan. "Till about two years back, Daikin was only making commercial ACs and chillers in India, and was importing all its residential ACs from Thailand and Japan. By 2012, Daikin stopped all imports and started manufacturing residential ACs at the Neemrana plant."

But that is not all the Gurgaon-headquartered company has done to be able to count itself among the A-list manufacturers. "The company has devised a five-point strategy which revolves not only around products, but also people, service, systems and the brand," adds Jawa.

In 2012, Daikin began commercial production of residential ACs with about 50 per cent localisation. It now manufactures all its models at the 40-acre facility in Rajasthan. With production facilities running on full capacity, Daikin manufactures nearly 500,000 residential ACs along with nearly 20,000 VRV units and 1,800 chiller units every year.

This move has made a big difference - local sourcing has helped it to cut nearly 45 per cent of its costs. By eliminating costs in the value chain, the company can now pursue a low-price strategy. While the Daikin non-inverter range starts from Rs 29,600, its inverter AC range starts from Rs 35,400. The price-points give it a smooth entry into Tier I and II cities.

Increasing the distribution network and improving customer service have also helped. It now has a 1,800-strong dealer network across the country (set to go up to 2,500 this fiscal) with close to 100 exclusive Daikin Solutions Plazas (set to go up to 200 this fiscal).

Daikin says that engineering is its "core asset". "Daikin endeavors to offer the very best in HVAC (heating, ventilation and AC market) technology, be it the introduction of the 'greener' HFC32 refrigerant or the 'energy-efficient' inverter AC technology," says Jawa.

Technology indeed has been a key differentiator for the company. As per recent research tests, Daikin's products topped the chart in energy efficiency ratio (EER) as declared by the various 5- star rated air-conditioner brands. Eyeing a turnover of Rs 3,000 crore this fiscal, Daikin aims to be the top HVAC player in India. "Significant efforts in terms of infrastructure, products, processes, brand and people are being formulated and adopted to fulfil the desired outcome by 2015," Jawa maintains.

Changing the settings
Looking back, the company started its innings on the back-foot. In 2000, Daikin entered India with a joint-venture (JV) with the Usha Shriram group (in which Daikin had 80 per cent stake). "When the company set up operations, it was seen as a premium player operating largely in the commercial space," observes a senior executive with a rival consumer durables maker. "Indeed, being part of a JV, Daikin wasn't seen to be majorly interested in the country," he adds.

In a sense, between 2000 and 2004, Daikin was trying to find its feet. A lot changed after 2004, albeit gradually, when Daikin bought out shares of the Shriram Group to make the Indian subsidiary a wholly-owned arm. The company also began to take baby-steps into the residential AC segment and began importing units. As expected, with costly imports, it could never dream of becoming a mass player. So, it simply cruised along in the next four-five years, waiting for the next big push.

Jawa joined Daikin in early-2010 as the deputy managing director and chief operating officer, and in eight months, was named MD of the company. It was also the time the company was reviewing its pricing strategy. In the previous year, the company had cut product prices by about 40 per cent and launched a slew of models to give its offering some muscle at the retail end. By then, local production had commenced.

Analysts say, the new pricing strategy was the simple-most important factor in giving sales the big push: In one year (between 2009-10 and 2010-11), its revenue doubled, shooting from Rs 440 crore to Rs 850 crore.

First Published: Thu, July 03 2014. 21:40 IST